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Why Citrix Systems Is Ready to Rebound

By Brian D. Pacampara, CFA – Jan 31, 2014 at 11:00AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Citrix Systems (CTXS) bounced back 2% this morning after Nomura Securities upgraded the cloud computing company from neutral to buy.

So what: Along with the upgrade, analyst Rick Sherlund planted a price target of $70 on the stock, representing about 31% worth of upside to yesterday's close. While momentum traders might be turned off by yesterday's earnings-related drop, Sherlund believes Citrix's risk/reward trade-off is now too cheap to pass up.

Now what: Nomura expects Citrix to post 2014 and 2015 earnings per share of $2.87 and $3.18, respectively. "Overall company revenue growth of 8% is coming largely from lower gross margin NetScaler, so the mix shift is creating some near-term margin pressure," Sherlund noted. "We think the low valuation provides some downside protection and there are a number of things that could go right that are not likely reflected in the share price." With Citrix shares off about 30% from their 52-week highs and trading at roughly four times recurring maintenance and subscription revenue, it's tough to disagree with Nomura's bullishness.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Citrix Systems Stock Quote
Citrix Systems
CTXS

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